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How To Do An Annual Financial Checkup

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Are You On the Road to Financial Freedom or Do You Need to Make a U-Turn?

You may have had your annual physical exam and taken your car in for scheduled service this year, but what about your annual financial checkup?

If you were on a long road trip, you'd stop occasionally and look at the map to see if you were headed in the right direction, wouldn't you? An annual financial checkup serves the same purpose. It's an opportunity to review how you've done financially over the past twelve months and make sure you're still headed in the right direction.

A good time to do your annual financial checkup is before the end of the year so you can take advantage of any tax-saving strategies, but if you can't fit it in during the busy holiday season, plan on doing it as soon after the new year as possible.

Identify Your Goals

The first step in your financial checkup is evaluating your financial goals. Have you made progress on them this year? If not, where have you fallen short? Can you figure out why? Have your goals changed during the year? If so, revise them and write them down.

Evaluate Changes in Your Personal Situation

Have changes in your personal situation taken place in the last year or do you anticipate any major changes in the near future? A job change, divorce, adding a baby to your family, retiring, buying a house, getting married, or moving can alter your income and your lifestyle significantly. You may need to adapt your budget, your spending, your savings, and your investments. Having time to plan for these changes in advance will make the transition much smoother.

Protect Your Assets

Next, evaluate your protection of your assets. Review your homeowner's or renter's insurance, health insurance, auto insurance. Don't forget to protect the greatest asset of all - your income earning ability - with long-term disability insurance.

Prepare for the Unexpected

Review your will, and if applicable, your estate plan. Have any changes taken place that require updating?

Evaluate Your Investment Performance

Calculate the return on each of your stocks, bonds, or mutual funds. Are you satisfied with their performance compared to the rest of the market? If you don't believe the investment will recover its losses, it may be time to sell the dogs.

Evaluate Your Debts

How are you doing on controlling and paying down debt? Evaluate your Debt To Income Ratio. Has your credit card debt decreased this year? If not, it's time to figure out where the leaks are taking place and try to plug them. It's difficult to get ahead and invest when too much of your income is going to interest payments on credit cards.

How's the interest rate on your mortgage? Should you consider refinancing? Even a small dip in rates can make a big difference over the life of your mortgage, but you have to consider closing costs to see if it's worthwhile.

How's your credit score? If you haven't ordered your free copies of your credit report, now's a good time to do it. Go to AnnualCreditReport.com.

Reduce Your Income Taxes

This is a good time to plan for next year's taxes. What can you do to minimize them? Add up all your allowable deductions and see if you can itemize. Review the list of allowable deductions and make sure you take advantage of any you're eligible for. Consider bunching deductions into one year or accelerating deductions by paying tax-deductible items early to help you reach the threshold for deducting. For instance, medical expenses can only be deducted if they exceed 7.5% of your income. If you're close, pre-paying an orthodontia bill or scheduling that elective surgery before the end of the year could save you some money on taxes.

Review Your Retirement Plans

How are you doing on your retirement funds? Are you contributing the maximum to your 401(k) plan? This is one of the best tax-reducing strategies available. If your employer doesn't have a 401(k), does it offer any other kind of plan? If not, set up an IRA on your own.

How'd you do? If your financial health is in good shape, congratulations! If it can use a little work, at least you know where you need to concentrate your efforts.

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